-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QRIp0XlTXFrFl99XYkBMnlFgzC+iifR8oQ9TSPLQ6KyKFy1z/vGFZmygqQ6B1okR usBmTPmY7Cb3yJJOqOSIjA== 0000912057-02-002967.txt : 20020414 0000912057-02-002967.hdr.sgml : 20020414 ACCESSION NUMBER: 0000912057-02-002967 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20020128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALTER INDUSTRIES INC /NEW/ CENTRAL INDEX KEY: 0000837173 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 133429953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13711 FILM NUMBER: 02519483 BUSINESS ADDRESS: STREET 1: 1500 N DALE MABRY HWY CITY: TAMPA STATE: FL ZIP: 33607 BUSINESS PHONE: 8138714811 MAIL ADDRESS: STREET 1: 1500 N DALE MABRY HWY STREET 2: 1500 NORTH MABRY HGWY CITY: TAMPA STATE: FL ZIP: 33607 FORMER COMPANY: FORMER CONFORMED NAME: HILLSBOROUGH HOLDINGS CORP DATE OF NAME CHANGE: 19910814 10-Q/A 1 a2068929z10-qa.txt FORM 10-Q/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-Q/A /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-20537 ------------------------ WALTER INDUSTRIES, INC. Incorporated in DELAWARE IRS Employer Identification No. 13-3429953 4211 W. Boy Scout Boulevard, Tampa, Florida 33607 Telephone Number (813) 871-4811 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /. There were 44,705,826 shares of common stock of the registrant outstanding at July 31, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I--FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS RESTATED
JUNE 30, DECEMBER 31, 2001 2000 (UNAUDITED) (NOTE 1) ----------- ------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS Cash and cash equivalents................................... $ 12,083 $ 11,513 Short-term investments, restricted.......................... 112,602 100,901 Marketable securities....................................... 3,905 1,980 Instalment notes receivable, net............................ 1,688,770 1,686,277 Receivables, net............................................ 270,504 239,620 Inventories................................................. 261,067 261,441 Prepaid expenses............................................ 11,579 13,079 Property, plant and equipment, net.......................... 478,097 480,361 Investments................................................. 12,956 13,226 Unamortized debt expense.................................... 40,310 42,432 Other long-term assets, net................................. 42,510 37,129 Goodwill, net............................................... 434,420 452,234 ---------- ---------- $3,368,803 $3,340,193 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable............................................ $ 160,738 $ 171,949 Accrued expenses............................................ 113,615 118,644 Income taxes payable........................................ 62,066 61,027 Debt Mortgage-backed/asset-backed notes........................ 1,757,625 1,769,833 Other senior debt......................................... 435,550 411,500 Accrued interest............................................ 30,847 28,231 Deferred income taxes....................................... 27,365 11,976 Accumulated postretirement benefits obligation.............. 293,063 286,903 Other long-term liabilities................................. 54,961 54,679 Stockholders' equity Common stock, $.01 par value per share: Authorized--200,000,000 shares Issued--55,366,518 and 55,355,184 shares................ 554 554 Capital in excess of par value............................ 1,159,728 1,162,767 Accumulated deficit....................................... (600,931) (620,688) Treasury stock--10,550,692 and 9,296,592 shares, at cost.................................................... (128,341) (116,113) Accumulated other comprehensive income (loss)............. 1,963 (1,069) ---------- ---------- Total stockholders' equity............................ 432,973 425,451 ---------- ---------- $3,368,803 $3,340,193 ========== ==========
See accompanying "Notes to Consolidated Financial Statements" 2 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) RESTATED
THREE MONTHS ENDED JUNE 30, ---------------------- 2001 2000 --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales and revenues: Net sales................................................. $455,786 $ 444,641 Time charges.............................................. 56,080 53,593 Miscellaneous............................................. 5,822 10,820 -------- --------- 517,688 509,054 ======== ========= Cost and expenses: Cost of sales............................................. 368,133 370,971 Depreciation.............................................. 15,469 17,588 Selling, general and administrative....................... 49,357 64,369 Provision for losses on instalment notes.................. 2,424 2,532 Postretirement benefits................................... 2,933 5,441 Interest and amortization of debt expense................. 43,409 47,909 Amortization of goodwill and other intangibles............ 9,295 8,873 Restructuring and impairment charges...................... -- 167,866 -------- --------- 491,020 685,549 -------- --------- Income (loss) before income taxes........................... 26,668 (176,495) Income tax benefit (expense)................................ (12,337) 44,509 -------- --------- Net income (loss)........................................... $ 14,331 $(131,986) ======== ========= Basic net income (loss) per share........................... $ .32 $ (2.80) -------- --------- Diluted net income (loss) per share......................... $ .32 $ (2.80) ======== =========
See accompanying "Notes to Consolidated Financial Statements" 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) RESTATED
SIX MONTHS ENDED JUNE 30, ---------------------- 2001 2000 --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales and revenues: Net sales................................................. $860,653 $ 846,092 Time charges.............................................. 110,778 108,573 Miscellaneous............................................. 10,695 18,043 -------- --------- 982,126 972,708 -------- --------- Cost and expenses: Cost of sales............................................. 693,045 684,601 Depreciation.............................................. 31,587 37,059 Selling, general and administrative....................... 97,628 119,576 Provision for losses on instalment notes.................. 4,868 5,269 Postretirement benefits................................... 8,405 10,906 Interest and amortization of debt expense................. 90,176 94,728 Amortization of goodwill and other intangibles............ 18,557 18,085 Restructuring and impairment charges...................... -- 167,866 -------- --------- 944,266 1,138,090 -------- --------- Income (loss) before income taxes........................... 37,860 (165,382) Income tax benefit (expense)................................ (18,103) 38,910 -------- --------- Net income (loss)........................................... $ 19,757 $(126,472) -------- --------- Basic net income (loss) per share........................... $ .43 $ (2.67) -------- --------- Diluted net income (loss) per share......................... $ .43 $ (2.67) -------- ---------
See accompanying "Notes to Consolidated Financial Statements" 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) RESTATED (IN THOUSANDS)
ACCUMULATED COMPREHENSIVE OTHER INCOME ACCUMULATED COMPREHENSIVE COMMON CAPITAL IN TREASURY TOTAL (LOSS) DEFICIT INCOME (LOSS) STOCK EXCESS STOCK -------- ------------- ----------- ------------- -------- ---------- --------- Balance at December 31, 2000....................... $425,451 $(620,688) $(1,069) $554 $1,162,767 $(116,113) Comprehensive income: Net income................. 19,757 $19,757 19,757 Other comprehensive income, net of tax: Net unrealized gain on hedge.................. 3,193 3,193 3,193 Foreign currency translation adjustment............. (161) (161) (161) ------- Comprehensive income......... $22,789 ------- Stock issued on exercise of stock options.............. 144 144 Purchases of treasury stock...................... (12,228) (12,228) Dividends paid............... (3,183) (3,183) -------- --------- ------- ---- ---------- --------- Balance at June 30, 2001..... $432,973 $(600,931) $ 1,963 $554 $1,159,728 $(128,341) ======== ========= ======= ==== ========== =========
See accompanying "Notes to Consolidated Financial Statements" 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) RESTATED
SIX MONTHS ENDED JUNE 30, --------------------- 2001 2000 --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss)......................................... $ 19,757 $(126,472) Charges to income (loss) not affecting cash: Depreciation............................................ 31,587 37,059 Provision for (benefit from) deferred income taxes...... 15,389 (54,370) Accumulated postretirement benefits obligation.......... 6,160 4,883 Provision for other long-term liabilities............... 282 12,054 Amortization of goodwill and other intangibles.......... 18,557 18,085 Amortization of debt expense............................ 2,622 3,568 Restructuring and impairment charges.................... -- 167,866 --------- --------- 94,354 62,673 Decrease (increase) in assets: Short-term investments, restricted...................... (11,701) 12,894 Marketable securities................................... (1,925) 36,819 Instalment notes receivable, net (a).................... (2,493) (16,324) Trade and other receivables, net........................ (30,884) (20,617) Inventories............................................. 374 (16,768) Prepaid expenses........................................ 1,500 6,007 Increase (decrease) in liabilities: Accounts payable........................................ (11,211) (10,769) Accrued expenses........................................ (5,029) (8,293) Income taxes payable.................................... 1,039 6,639 Accrued interest........................................ 2,616 (2,337) --------- --------- Cash flows from operating activities.................. 36,640 49,924 --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment, net of retirements............................................. (29,323) (42,358) Decrease (increase) in investments and other assets....... (5,854) 1,099 --------- --------- Cash flows used in investing activities............... (35,177) (41,259) --------- --------- FINANCING ACTIVITIES Issuance of debt.......................................... 443,207 786,764 Retirement of debt........................................ (431,365) (804,536) Additions to unamortized debt expense..................... (500) (1,950) Purchases of treasury stock............................... (12,228) (15,191) Dividends paid............................................ (3,183) (2,867) Net unrealized gain on hedge.............................. 3,193 192 Exercise of employee stock options........................ 144 509 --------- --------- Cash flows used in financing activities............... (732) (37,079) --------- --------- EFFECT OF EXCHANGE RATE ON CASH............................. (161) (475) --------- --------- Net increase (decrease) in cash and cash equivalents........ 570 (28,889) Cash and cash equivalents at beginning of period............ 11,513 57,508 --------- --------- Cash and cash equivalents at end of period.................. $ 12,083 $ 28,619 ========= =========
- -------------------------- (a) Consists of sales and resales, net of repossessions and provision for losses of $77.2 million and $58.9 million and cash collections on account and payouts in advance of maturity of $79.7 million and $75.2 million, respectively. See accompanying "Notes to Consolidated Financial Statement" 6 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) RESTATED NOTE 1--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to conform prior year's data to the current presentation. These reclassifications had no effect on reported earnings. Operating results for the three and six month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Walter Industries, Inc. and Subsidiaries Transition Report on Form 10-K/A for the transition period ended December 31, 2000. NOTE 2--RESTATEMENTS The following amounts have been restated for certain accounting policy changes, collectively referred to as the "revised accounting policies" including use of the interest method of revenue recognition on the instalment note portfolio, related provision for losses on instalment notes, deferral and amortization of note origination costs and the deferral of gains recognized upon the sale of repossessed properties. Previously, time charges were included in equal parts in each monthly payment (i.e. straight-line method) and taken into income as collected. Generally, the effect of the revised accounting policies was to reduce revenues, including principally time-charge income which is reflected in net sales and revenues, and to increase provision for losses on instalment notes. The restatements reflect deferral and amortization of nominal gains on the sale of repossessed properties and nominal deferral and amortization of note origination costs. In addition, stockholders' equity increased by $229.9 million as of December 31, 2000 the earliest date presented as a result of the impact of the restatements discussed above, net of tax. Previously reported selling, general and administrative expense amounts have been reduced in each period presented to reflect the amount of provision for losses on instalment notes that has been reclassified to a separate line item in the restated format. All financial data in the Form 10-Q/A reflects the impact of the 7 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 (UNAUDITED) RESTATED NOTE 2--RESTATEMENTS (CONTINUED) restatement. The following table summarizes the impact of applying the interest method on the statement of operations and balance sheet:
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, 2001 ENDED JUNE 30, 2001 ------------------------ ------------------------ AS PREVIOUSLY AS AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED ------------- -------- ------------- -------- Statement of operations data: Net sales and revenues.......................... $516,547 $517,688 $980,002 $982,126 Cost of sales................................... 368,682 368,133 694,144 693,045 Selling, general and administrative............. 49,475 49,357 98,058 97,628 Provision for losses on instalment notes........ -- 2,424 -- 4,868 Income before income taxes...................... 27,284 26,668 39,075 37,860 Income tax expense.............................. (12,553) (12,337) (18,528) (18,103) Net income...................................... $ 14,731 $ 14,331 $ 20,547 $ 19,757 Basic and diluted net income per share.......... $ .32 $ .32 $ .45 $ .43
AS OF JUNE 30, 2001 --------------------------- AS PREVIOUSLY REPORTED AS RESTATED ------------- ----------- Balance sheet data: Instalment notes receivable................................. $1,362,670 $1,698,070 Allowance for losses on instalment notes.................... (26,964) (9,300) Inventories................................................. 261,649 261,067 Deferred income taxes--asset (liability).................... 96,004 (27,365) Total assets................................................ 3,112,325 3,368,803 Accumulated deficit......................................... (830,044) (600,931) Stockholders' equity........................................ 203,860 432,973
8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 (UNAUDITED) RESTATED NOTE 2--RESTATEMENTS (CONTINUED)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ENDED JUNE 30, 2000 ------------------------- ------------------------- AS PREVIOUSLY AS AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED ------------- --------- ------------- --------- Statement of operations data: Net sales and revenues......................... $ 507,658 $ 509,054 $ 972,360 $ 972,708 Cost of sales.................................. 371,553 370,971 685,786 684,601 Selling, general and administrative............ 64,703 64,369 120,443 119,576 Provision for losses on instalment notes....... -- 2,532 -- 5,269 Loss before income taxes....................... (176,275) (176,495) (162,513) (165,382) Income tax benefit............................. 44,432 44,509 37,906 38,910 Net income (loss).............................. $(131,843) $(131,986) $(124,607) (126,472) Basic and diluted net income (loss) per share........................................ $ (2.79) $ (2.80) $ (2.63) $ (2.67)
DECEMBER 31, 2000 --------------------------- AS PREVIOUSLY REPORTED AS RESTATED ------------- ----------- Balance sheet data: Instalment notes receivable................................. $1,358,858 $1,696,577 Allowance for losses on instalment notes.................... (26,839) (10,300) Inventories................................................. 262,002 261,441 Deferred income taxes--asset (liability).................... 111,818 (11,976) Total assets................................................ 3,098,314 3,340,193 Accumulated deficit......................................... (850,591) (620,688) Stockholders' equity........................................ 195,548 425,451
NOTE 3--RESTRICTED SHORT-TERM INVESTMENTS Restricted short-term investments at June 30, 2001 and December 31, 2000 include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts II, IV, VI, VII, VIII, and IX at June 30, 2001 and Mid-State Trusts II, IV, V, VI, VII, and VIII at December 31, 2000 (the "Trusts") ($107.7 million and $94.1 million, respectively), which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts and (ii) miscellaneous other segregated accounts restricted to specific uses ($4.9 million and $6.8 million), respectively. 9 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 (UNAUDITED) RESTATED NOTE 4--INSTALMENT NOTES RECEIVABLE--RESTATED (SEE NOTE 2) The instalment notes receivable is summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 2001 2000 ---------- ------------- Instalment Notes Receivable......................... $1,698,070 $1,696,577 Less: Allowance for losses on instalment notes...... (9,300) (10,300) ---------- ---------- Net................................................. $1,688,770 $1,686,277 ========== ==========
Activity in the allowance for losses on instalment notes is summarized as follows (in millions):
JUNE 30, DECEMBER 31, 2001 2000 --------- ------------- Balance at beginning of period......................... $10,300 $10,700 Provisions charged to income........................... 4,868 5,310 Charge-offs, net of recoveries......................... (5,868) (5,710) ------- ------- Balance at end of period............................... $ 9,300 $10,300 ======= =======
NOTE 5--INVENTORIES--RESTATED (SEE NOTE 2) Inventories are summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 2001 2000 --------- ------------- Finished goods........................................ $159,654 $159,069 Goods in process...................................... 44,147 46,289 Raw materials and supplies............................ 51,797 49,387 Houses held for resale................................ 5,469 6,696 -------- -------- Total inventories..................................... $261,067 $261,441 ======== ========
10 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 (UNAUDITED) RESTATED NOTE 6--DEBT Debt, in accordance with its contractual terms, consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2001 2000 ---------- ------------- Mortgage-Backed/Asset-Backed Notes: Trust II Mortgage-Backed Notes.................... $ 129,200 $ 161,500 Trust IV Asset Backed Notes....................... 492,559 502,174 Trust V Variable Funding Loan..................... -- 161,000 Trust VI Asset Backed Notes....................... 299,612 309,803 Trust VII Asset Backed Notes...................... 261,842 272,192 Trust VIII Asset Backed Notes..................... 347,905 363,164 Trust IX Variable Funding Loan.................... 226,507 -- ---------- ---------- 1,757,625 1,769,833 ---------- ---------- Other senior debt: Walter Industries, Inc. Revolving Credit Facility....................... 135,000 110,000 Term Loan....................................... 300,000 300,000 Other........................................... 550 1,500 ---------- ---------- 435,550 411,500 ---------- ---------- Total............................................... $2,193,175 $2,181,333 ========== ==========
NOTE 7--STOCKHOLDERS' EQUITY Information relating to the Company's share repurchases is set forth in the following table (in thousands):
SHARES AMOUNT -------- -------- Treasury stock at December 31, 2000....................... 9,297 $116,113 Share repurchases for the six months ended June 30, 2001.................................................... 1,254 12,228 ------ -------- Total held in treasury at June 30, 2001................... 10,551 $128,341 ====== ========
On April 2, 2001 the Board of Directors increased the authorization to repurchase the Company's common stock to $25.0 million. As of June 30, 2001, $17.2 million remained available to repurchase shares under this authorization. 11 NOTE 8--EARNINGS PER SHARE--RESTATED (SEE NOTE 2) A reconciliation of the basic and diluted earnings per share computations for the three and six months ended June 30, 2001 and 2000 are as follows (in thousands, except per share data):
THREE MONTHS ENDED JUNE 30, ------------------------------------------- 2001 2000 ------------------- --------------------- BASIC DILUTED BASIC DILUTED -------- -------- --------- --------- Net income (loss).................... $14,331 $14,331 $(131,986) $(131,986) ======= ======= ========= ========= Shares of common stock outstanding: Average number of common shares (a).. 44,974 44,974 47,179 47,179 Effect of diluted securities: Stock options (b).................... -- 345 -- -- ------- ------- --------- --------- 44,974 45,319 47,179 47,179 ======= ======= ========= ========= Net income (loss) per share.......... $ .32 $ .32 $ (2.80) $ (2.80) ======= ======= ========= =========
SIX MONTHS ENDED JUNE 30, ------------------------------------------- 2001 2000 ------------------- --------------------- BASIC DILUTED BASIC DILUTED -------- -------- --------- --------- Net income (loss).................... $19,757 $19,757 $(126,472) $(126,472) ======= ======= ========= ========= Shares of common stock outstanding: Average number of common shares (a).. 45,455 45,455 47,374 47,374 Effect of diluted securities: Stock options (b).................... -- 241 -- -- ------- ------- --------- --------- 45,455 45,696 47,374 47,374 ======= ======= ========= ========= Net income (loss) per share.......... $ .43 $ .43 $ (2.67) $ (2.67) ======= ======= ========= =========
- ------------------------ (a) The three and six months ended June 30, 2001 and 2000 shares include 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan, but do not include shares held in treasury. (b) Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These purchases were assumed to have been made at the higher of either the market price of the common stock at the end of the period or the average market price for the period. On February 1, 2001, the Company declared a $.04 per share dividend for the four months ended December 31, 2000 payable to shareholders of record on February 15, 2001. On April 26, 2001, the Company declared a $.03 per share dividend for the three months ended March 31, 2001 payable to shareholders of record on May 16, 2001. On July 30, 2001, the Company declared a $.03 per share dividend for the three months ended June 30, 2001 payable to shareholders of record on August 15, 2001. NOTE 9--DERIVATIVES Financial Accounting Standards Board Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Statement 133), requires companies to recognize all of its derivative instruments 12 NOTE 9--DERIVATIVES (CONTINUED) as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based on the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The Company uses derivative instruments principally to manage exposures to natural gas price fluctuations. The Company's objective for holding derivatives is to minimize risk using the most effective methods to eliminate or reduce the impacts of exposures. The Company documents all relationships between hedging instruments and hedged items, and links all derivatives designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also assesses and documents, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows associated with the hedged items. To protect against the reduction in value of forecasted cash flows resulting from sales of natural gas over the remainder of 2001, the Company has instituted a natural gas hedging program. The Company hedges portions of its forecasted revenues from sales of natural gas with swap contracts. The Company has entered into natural gas swap agreements that effectively convert a portion of its forecasted sales at floating-rate natural gas prices to a fixed-rate basis for the remainder of 2001, thus reducing the impact of natural gas price changes on future sales revenues. When natural gas prices fall, the decline in value of future natural gas sales is offset by gains in the value of swap contracts designated as hedges. Conversely, when natural gas prices rise, the increase in the value of future cash flows from natural gas sales is offset by losses in the value of the swap contracts. At June 30, 2001, approximately 50% of the Company's forecasted natural gas sales for the remainder of the year were designated as the hedged items to natural gas swap agreements. During the quarter ended June 30, 2001, the net loss from the ineffective portion of the Company's hedging instruments, which was insignificant, was recognized and included in net sales in the statement of operations. The $3.2 million of net gains on derivative instruments included in accumulated other comprehensive income at June 30, 2001 is expected to be reclassified, along with any additional gains or losses that may be incurred after June 30, 2001, to earnings as actual natural gas sales occur during the remaining six months of 2001. 13 NOTE 10--SEGMENT INFORMATION--RESTATED (SEE NOTE 2) Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):
THREE MONTHS ENDED JUNE 30, -------------------- 2001 2000 -------- --------- Sales and revenues: Homebuilding and Financing........................... $118,055 $ 121,017 Industrial Products.................................. 218,180 228,756 Energy Services...................................... 112,496 99,773 Natural Resources.................................... 67,135 51,168 Other................................................ 1,822 8,340 -------- --------- Sales and revenues................................. $517,688 $ 509,054 ======== ========= Operating income (a): Homebuilding and Financing........................... $ 14,437 $ 9,600 Industrial Products.................................. 17,552 5,271 Energy Services...................................... 9,654 3,437 Natural Resources.................................... 2,846 (170,961) -------- --------- Operating income (loss)............................ 44,489 (152,653) Less: General corporate expense 8,716 12,523 Senior debt interest expense..................... 9,105 11,319 -------- --------- Income (loss) before tax (expense) benefit........... 26,668 (176,495) Income tax (expense) benefit......................... (12,337) 44,509 -------- --------- Net income (loss).................................. $ 14,331 $(131,986) ======== ========= Depreciation: Homebuilding and Financing........................... $ 1,061 $ 1,070 Industrial Products.................................. 9,069 7,539 Energy Services...................................... 1,456 1,819 Natural Resources.................................... 2,907 6,175 Other................................................ 976 985 -------- --------- Total.............................................. $ 15,469 $ 17,588 ======== =========
- ------------------------ (a) Operating income amounts are after deducting amortization of goodwill and other intangibles. A breakdown of amortization by segment is as follows (in thousands):
THREE MONTHS ENDED JUNE 30, ------------------- 2001 2000 -------- -------- Homebuilding and Financing............................... $4,272 $ 4,350 Industrial Products...................................... 2,617 2,635 Energy Services.......................................... 2,139 2,139 Natural Resources........................................ -- (8,021) Other.................................................... 267 7,770 ------ ------- $9,295 $ 8,873 ====== =======
14 NOTE 10--SEGMENT INFORMATION--RESTATED (SEE NOTE 2) (CONTINUED)
SIX MONTHS ENDED JUNE 30, -------------------- 2001 2000 -------- --------- Sales and revenues: Homebuilding and Financing........................... $231,771 $ 242,213 Industrial Products.................................. 415,845 425,231 Energy Services...................................... 198,116 192,024 Natural Resources.................................... 133,442 101,775 Other................................................ 2,952 11,465 -------- --------- Sales and revenues................................. $982,126 $ 972,708 -------- --------- Operating income (a): Homebuilding and Financing........................... $ 23,941 $ 19,349 Industrial Products.................................. 32,389 23,465 Energy Services...................................... 14,818 12,207 Natural Resources.................................... 3,453 (179,212) -------- --------- Operating income (loss)............................ 74,601 (124,191) Less: General corporate expense 16,320 18,589 Senior debt interest expense..................... 20,421 22,602 -------- --------- Income (loss) before tax (expense) benefit........... 37,860 (165,382) Income tax (expense) benefit......................... (18,103) 38,910 -------- --------- Net income (loss).................................. $ 19,757 $(126,472) ======== ========= Depreciation: Homebuilding and Financing........................... $ 2,149 $ 2,158 Industrial Products.................................. 18,562 15,950 Energy Services...................................... 3,126 3,527 Natural Resources.................................... 5,814 13,799 Other................................................ 1,936 1,625 -------- --------- Total.................................................. $ 31,587 $ 37,059 ======== =========
- ------------------------ (a) Operating income amounts are after deducting amortization of goodwill and other intangibles. A breakdown of amortization by segment is as follows (in thousands):
SIX MONTHS ENDED JUNE 30, ------------------- 2001 2000 -------- -------- Homebuilding and Financing.............................. $ 8,542 $ 9,112 Industrial Products..................................... 5,208 5,238 Energy Services......................................... 4,278 4,278 Natural Resources....................................... -- (8,457) Other................................................... 529 7,914 ------- ------- $18,557 $18,085 ======= =======
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As more fully described in Note 2 of "Notes to Consolidated Financial Statements," on January 28, 2002, the Company restated its previously issued financial statements for certain accounting policy changes, collectively referred to as the "revised accounting policies." Accordingly, all prior period information presented herein has been restated to reflect these changes. Total assets, net instalment notes receivable, allowance for losses, equity, certain income statement amounts and net income were restated on this Form 10-Q/A from amounts previously reported in the Company's Form 10-Q, as filed August 14, 2001. The principal differences result from a change in the method of recognizing time charge income from the straight-line method to the interest method, which also has a related impact on the allowance for losses. These changes are reflected in the Homebuilding and Financing segment. The following discussion of operating results includes the impact of these restatements. This discussion should be read in conjunction with the consolidated financial statements and notes thereto of Walter Industries, Inc. and subsidiaries, particularly Note 10 of "Notes to Consolidated Financial Statements," which presents sales and revenues and operating income by operating segment. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 AND 2000 Net sales and revenues for the three months ended June 30, 2001 were $517.7 million, an increase of $8.6 million from the comparable three month period in 2000. This increase in revenues primarily reflected approximately $18 million of product shipments by the Energy Services segment that were delayed from the first quarter to the second quarter of 2001. Additionally, revenue growth at U.S. Pipe and in the Natural Resources segment was offset by declines in unit sales of homes and lower demand for furnace coke and aluminum products. Also, time charges increased $2.5 million principally as the result of higher prepayments. Miscellaneous income decreased primarily because of non-recurring revenue from life insurance policies of $6.4 million included in the prior year. Cost of sales, exclusive of depreciation, of $368.1 million was 80.8% of net sales in the 2001 period versus $371.0 million and 83.4% of net sales in the comparable period of 2000. The prior year included approximately $13.2 million of charges, primarily for inventory obsolescence and valuation reserves and environmental liabilities in the Industrial Products and Natural Resources segments. Exclusive of these charges, cost of sales increased in the current period due to increased sales and higher energy costs. The decrease in cost of sales as a percentage of net sales reflects lower material costs at U.S. Pipe and Jim Walter Homes, improved productivity, cost reduction efforts and an improved product mix. These improvements were partially offset by lost fixed cost absorption in some of the Industrial Products businesses, lower gross profit margins on petcoke sales and higher energy costs. Depreciation for the three months ended June 30, 2001 was $15.5 million, a decrease of $2.1 million from the same period in 2000. This decrease was primarily attributable to a lower depreciable asset base resulting from the $166.7 million asset impairment charge to the Company's coal mining assets taken in May 2000. Selling, general and administrative expenses of $49.4 million were 9.5% of net sales and revenues in the 2001 period, compared to $64.4 million and 12.6% in 2000. The prior year included approximately $11.4 of charges, primarily for an increase in the provision for losses on trade receivables within the Energy Services segment and increased workers compensation expense. Productivity improvement programs implemented in the last twelve months, including the restructuring of the European operations in the Energy Services segment and headcount reductions at the corporate headquarters, have contributed to additional reductions in selling, general and administrative expenses. 16 Provision for losses on instalment notes of $2.4 million were 4.3% of time charges in the 2001 period, compared to $2.5 million and 4.7% in 2000. Interest and amortization of debt expense was $43.4 million for the three months ended June 30, 2001, as compared to $47.9 million in the same period of 2000. The average rate of interest for the three months ended June 30, 2001 was 7.6% as compared to 8.0% for the three months ended June 30, 2000. The prime rate of interest was a range from 7.0% to 7.8% in the current year period compared to a range of 9.0% to 9.5% in 2000. The Company's effective tax rate for the three months ended June 30, 2001 differed from the federal statutory tax rate primarily due to amortization of goodwill (excluding amounts related to the AIMCOR acquisition) which is not deductible for tax purposes, the utilization of certain federal tax credits, and the effect of state and local income taxes. The effective tax rate for the three months ended June 30, 2000 differed from the federal statutory tax rate primarily due to amortization of goodwill, the utilization of certain federal tax credits, recording of a valuation allowance associated with certain tax benefits which are not likely to be realized and the recognition of a tax reserve for the loss of certain tax litigation relating to leveraged buyout costs. Net income for the three months ended June 30, 2001 was $14.3 million compared to a net loss of $132.0 million in the comparable 2000 period. The Company's diluted earnings per share in the 2001 period was $0.32 compared to a loss of $2.80 per share in the 2000 period. The current and prior period results also reflect the factors discussed in the following segment analysis. Segment Analysis: HOMEBUILDING AND FINANCING Net sales and revenues were $118.1 million for the three months ended June 30, 2001, a decrease of $2.9 million from the quarter ended June 30, 2000. During the three months ended June 30, 2001, revenues decreased as the Company completed fewer homes, but this was partially offset by an increase in the average net selling price. The average net selling price increased as a result of new product options, amenity upgrades and consumer preference for more upscale models.
THREE MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, 2001 2000 --------------- --------------- Homes Completed........................... 998 1,092 Average Net Selling Price................. $58,400 $57,500
In addition, time charge income increased $2.5 million principally as the result of higher prepayments. The prepayment speed increased to 6.7% for the quarter ended June 30, 2001 compared to 4.9% for the quarter ended June 30, 2000. Prepayment activity is expected to decrease in the third quarter as refinancing applications have declined and mortgage rates have bottomed out. The estimated backlog of homes to be constructed at June 30, 2001 was $116.0 million compared to $99.0 million at December 31, 2000 and $108.2 million at June 30, 2000. Due to more aggressive marketing efforts, gross sales of new construction contracts for the first six months of the year increased 12%, which is expected to translate into higher unit completions and revenues in the second half of the year. Operating income was $14.4 million for the three months ended June 30, 2001 compared to $9.6 million in the prior year period. The $4.8 million increase was principally caused by the $2.5 million increase in time charges as well as improved operating margins on home sales, attributable to lower materials cost and productivity improvements. These improvements were partially offset by lower revenues from fewer unit completions. 17 INDUSTRIAL PRODUCTS Net sales and revenues were $218.2 million for the three months ended June 30, 2001, a decrease of $10.6 million from the $228.8 million for the three months ended June 30, 2000. Recent weakness in the domestic steel industry, caused by competition from foreign suppliers and a slower economy, has significantly impacted sales at Sloss. Sloss' revenues decreased by $7.7 million from the comparable period a year earlier, principally due to reduced sales of furnace coke. JW Aluminum also experienced fewer shipments during the current quarter, principally due to lower demand for its fin stock products used in air conditioners. However, compared to the quarter ended June 30, 2000, U.S. Pipe revenues were up 10% as shipment tonnage increased by 13,200 tons, or 7.5%, and the average selling price per ton for pipe products increased with a slightly more favorable product mix. The order backlog for U.S. Pipe at June 30, 2001 was $66.0 million compared to $87.0 million at June 30, 2000 and $82.0 million at December 31, 2000. Operating income of $17.6 million for the second quarter of 2001 was up $12.3 million from the $5.3 million for the three months ended June 30, 2000. The second quarter of 2000 included $16.4 million of charges in the Industrial Product segment, primarily for inventory obsolescence write-offs and environmental liabilities. Excluding these charges, operating income at U.S. Pipe improved 28% reflecting strong demand for it's ductile iron pipe products and continuing cost reductions and productivity improvements. Higher energy costs at U.S. Pipe of approximately $1.4 million were more than offset by a $3.0 million reduction in materials costs. However, strong results at U.S. Pipe were more than offset by other decreases in operating income at Sloss Industries and JW Aluminum. Sloss' operating income declined $4.5 million from last year, due to lower demand for furnace coke. Sloss has recently received orders for over 120,000 tons of furnace coke for the second half of this year, enabling a return to more normal levels of production for the balance of the year. JW Aluminum's operating income declined $3.1 million, due to reduced demand for fin stock products. In response to this lower demand for fin stock products, production levels have been reduced and the production mix has been changed to emphasize building products, where demand is better but margins are lower. ENERGY SERVICES Net sales and revenues were $112.5 million for the three months ended June 30, 2001, an increase of $12.7 million from the three months ended June 30, 2000. The increase in revenues primarily reflected product shipments that were delayed from the first quarter to the second quarter of 2001. Operating income of $9.7 million, was $6.2 million above the prior year period due to ongoing productivity improvements along with cost reductions associated with last year's restructuring of its European operations and a higher provision for losses on trade receivables in the prior year. These improvements were offset by lower margins--a number of higher-priced contracts were replaced by contracts with lower margins in the current period--as well as weaker performance by its metals additive business. The metals additive business continues to be impacted by the distressed domestic steel industry. NATURAL RESOURCES Net sales and revenues were $67.1 million for the three months ended June 30, 2001, an increase of $15.9 million from the $51.2 million in the prior year period. This improvement is attributable to an increase in natural gas revenues, which rose $3.7 million due to an increase in average selling price. 18 Additionally, coal revenues rose $12.6 million due to an increase in tons of coal sold and an increase in average coal selling prices.
THREE MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, 2001 2000 --------------- --------------- Average Natural Gas Selling Price (per MCF).................................... $ 4.84 $ 3.36 Number of Natural Gas Wells............... 362 320 Average Coal Selling Price (per ton)...... $ 28.73 $ 27.82 Average Cost Per Ton Produced............. $ 27.74 $ 28.69 Tons of Coal Sold......................... 1.8 million 1.4 million
For the three months ended June 30, 2001, Natural Resources had operating income of $2.8 million, compared to an operating loss of $171.0 million for the quarter ended June 30, 2000. The prior year included pre-tax restructuring, impairment and other charges of $164.3 million. Excluding these charges, the improvement in operating income was principally driven by higher coal and natural gas selling prices, increased shipments and a 3.3% decline in average production costs from successful cost reduction efforts in the mining operations. In the second half of 2001, coal prices are expected to increase substantially as new contracts take effect. This is somewhat offset by weakness in natural gas prices which are expected to be lower in the second half of 2001. However, the Company has protected 50% of the natural gas revenue stream through December 31, 2001 by entering into hedges earlier this year. GENERAL CORPORATE EXPENSES General corporate expenses were $8.7 million during the three months ended June 30, 2001 compared to $12.5 million for the three months ended June 30, 2000. This decline is principally attributable to cost reduction efforts, including a reduction in headcount and other expenses at the corporate office. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 Net sales and revenues for the six months ended June 30, 2001 were $982.1 million, an increase of $9.4 million from the comparable six month period in 2000. Revenue growth at U.S. Pipe and within the Energy Services and Natural Resources segments was partially offset by declines in unit sales of homes and lower demand for furnace coke and aluminum products. Miscellaneous income decreased $7.3 million, primarily because of non-recurring revenues from life insurance policies of $8.8 million in the prior year. Cost of sales, exclusive of depreciation, of $693.0 million was 80.5% of net sales in the 2001 period versus $684.6 million and 80.9% of net sales in the comparable period of 2000. The prior year included approximately $13.2 million of charges, primarily for inventory obsolescence and valuation reserves and environmental liabilities in the Industrial Products and Natural Resources segments. Exclusive of these charges, the increase in cost of sales was principally the result of increased sales and higher energy costs. The decrease in cost of sales as a percent of net sales reflects higher gross profit margins driven by cost reductions and productivity improvements, including lower materials cost for homebuilding and lower scrap iron cost for U.S. Pipe. This was partially offset by lost fixed cost absorption in some of the Industrial Products businesses, lower gross profit margins realized on petcoke sales and higher energy costs. Depreciation for the six months ended June 30, 2001 was $31.6 million, a decrease of $5.5 million from the same period in 2000. This decrease was primarily attributable to a lower depreciable asset 19 base resulting from the $166.7 million asset impairment charge to the Company's coal mining assets taken in May 2000. Selling, general and administrative expenses of $97.6 million were 9.9% of net sales and revenues in the 2001 period, compared to $119.6 million and 12.3% in 2000. The prior year included charges of $11.4 million, primarily for an increase in the provision for losses on trade receivables within the Energy Services segment, and increased workers compensation expense. Productivity improvement programs implemented in the last twelve months, including the restructuring of the European operations in the Energy Services segment and headcount reductions at the corporate headquarters, have contributed to additional reductions in selling, general and administrative expenses. Provision for losses on instalment notes of $4.9 million were 4.4% of time charges in the 2001 period compared to $5.3 million and 4.9% in 2000. Interest and amortization of debt expense was $90.2 million for the six months ended June 30, 2001, as compared to $94.7 million in the same period of 2000. The average rate of interest was 7.9% for both the six months ended June 30, 2001 and for the six months ended June 30, 2000. The prime rate of interest was a range from 7.0% to 9.1% in the current year period compared to a range of 8.5% to 9.5% in 2000. The Company's effective tax rate for the six months ended June 30, 2001 differed from the federal statutory tax rate primarily due to amortization of goodwill (excluding amounts related to the AIMCOR acquisition) which is not deductible for tax purposes, the utilization of certain federal tax credits, and the effect of state and local income taxes. The effective tax rate for the six months ended June 30, 2000 differed from the federal statutory tax rate primarily due to amortization of goodwill, the utilization of certain federal tax credits, recording of a valuation allowance associated with certain tax benefits which are not likely to be realized, the recognition of a tax reserve for the loss of certain tax litigation relating to leveraged buyout costs and the effect of a gain from an executive life insurance policy which is not subject to income taxes. Net income for the six months ended June 30, 2001 was $19.8 million compared to a net loss of $126.5 million in the comparable 2000 period. The Company's diluted earnings per share in the 2001 period was $.43 compared to a loss of $2.67 per share in the 2000 period. The current and prior period results also reflect the factors discussed in the following segment analysis. Segment Analysis: HOMEBUILDING AND FINANCING Net sales and revenues were $231.8 million for the six months ended June 30, 2001, a decrease of $10.4 million from the quarter ended June 30, 2000. During the six months ended June 30, 2001, revenues decreased as the Company completed fewer homes, but this was partially offset by an increase in the average net selling price.
SIX MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2001 2000 --------------- --------------- Homes Completed............................... 1,922 2,157 Average Net Selling Price..................... $58,500 $57,600
Time charge income increased $2.2 million as the prepayment speed increased slightly to 5.5% for the six months ended June 30, 2001 compared to 5.1% for the comparable period in the prior year. Operating income was $23.9 million for the six months ended June 30, 2001 compared to $19.3 million in the prior year period. The $4.6 million increase was principally caused by improved operating margins on home sales, attributable to lower materials costs and productivity improvements. These improvements were partially offset by lower revenues from fewer unit completions. 20 INDUSTRIAL PRODUCTS Net sales and revenues were $415.8 million for the six months ended June 30, 2001, a decrease of $9.4 million from the $425.2 million for the six months ended June 30, 2000. The decrease is due primarily to declines in shipments at Sloss and JW Aluminum. Sloss' revenues decreased by $14.4 million from the comparable period a year earlier, principally due to reduced sales of furnace coke. JW Aluminum also experienced lower shipments principally due to the slowing economy and lower demand for its fin stock products used in air conditioners. However, compared to the six months ended June 30, 2000, U.S. Pipe revenues were up 11% as shipment tonnage increased by 24,700 tons, or 7.9%, and the average selling price per ton for pipe products increased with a slightly more favorable product mix. Operating income of $32.4 million for the six months ended June 30, 2001 was up $8.9 million from the $23.5 million for the six months ended June 30, 2000. The 2000 period included $16.4 million of charges in the Industrial Products segment taken in the second quarter as described in "Results of Operations for the Three Months ended June 30, 2001 and June 30, 2000" section. Excluding these charges, operating income at U.S. Pipe improved 26%, reflecting strong demand for it's ductile iron pipe products and continuing productivity improvements. Higher energy costs at U.S. Pipe of approximately $5.0 million were more than offset by a $6.5 million reduction in scrap iron costs. However, strong results at U.S. Pipe were offset by decreases in operating income at JW Aluminum and Sloss Industries where declines in demand for their products, primarily fin stock and furnace coke, were the primary drivers for poor performance. ENERGY SERVICES Net sales and revenues were $198.1 million for the six months ended June 30, 2001, an increase of $6.1 million from the six months ended June 30, 2000. The increase is primarily due to increased prices and a change in sales mix offset, by a decline in volume. Operating income of $14.8 million, was $2.6 million above the prior year period due to ongoing productivity improvements, along with cost reductions associated with last year's restructuring of its European operations and a higher provision for losses on trade receivables in the prior year. These improvements were offset by lower margins, as well as weaker performance by the metals additive business. NATURAL RESOURCES Net sales and revenues were $133.4 million for the six months ended June 30, 2001, an increase of $31.7 million from the $101.8 million in the prior year period. This improvement is primarily attributable to an increase in natural gas revenues, which rose $13.9 million, resulting primarily from an increase in average selling price. Additionally, coal revenues rose $17.7 million primarily due to an increase in tons of coal sold, which was partially offset by a slight decrease in average coal selling prices.
SIX MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2001 2000 --------------- --------------- Average Natural Gas Selling Price (per MCF)... $ 5.91 $ 2.94 Average Coal Selling Price (per ton).......... $ 28.43 $ 28.83 Average Cost Per Ton Produced................. $ 28.91 $ 30.42 Tons of Coal Sold............................. 3.5 million 2.8 million
For the six months ended June 30, 2001, Natural Resources had operating income of $3.5 million, compared to an operating loss of $179.2 million for the six months ended June 30, 2000. The loss in the prior year period included pre-tax restructuring, impairment and other charges of $164.3 million. Excluding these charges, the improvement in operating income was principally driven by significant 21 increases in natural gas prices, increased coal shipments and a 5% decline in average production costs from successful cost reduction efforts in the mining operations. GENERAL CORPORATE EXPENSES General corporate expenses were $16.3 million during the six months ended June 30, 2001 compared to $18.6 million for the six months ended June 30, 2000. This decline is principally attributable to cost reduction efforts, including a reduction in headcount and other expenses at the corporate office. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Since December 31, 2000, total debt has increased by $11.8 million. During the six month period ended June 30, 2001, net borrowings under the Mid-State Trust IX Variable Funding Loan Agreement totaled $226.5 million. Payments on the mortgage-backed/asset-backed notes amounted to $238.7 million. Other senior debt increased by $24.1 million. At June 30, 2001 borrowings under the Revolving Credit Facility totaled $135.0 million. The Revolving Credit Facility includes a sub-facility for trade and other standby letters of credit in an amount up to $75.0 million at any time outstanding. At June 30, 2001 letters of credit with a face amount of $58.4 million were outstanding. The Credit Facilities contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, pay dividends, create liens on assets, enter into capital leases, make investments or acquisitions, engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities (including change of control and asset sale transactions). In addition, under the Credit Facilities, the Company and its Restricted Subsidiaries is required to maintain specified financial ratios and comply with certain financial tests. The most restrictive of these limitations are requirements to maintain (a) a minimum interest coverage ratio (the ratio of EBITDA to interest expense for the Company and its Restricted Subsidiaries as defined in the Credit Facilities) of at least 2.50-to-1 and (b) a maximum leverage ratio (the ratio of indebtedness to EBITDA for the Company and its Restricted Subsidiaries as defined in the Credit Facilities) of not more than 3.75-to-1. The Company was in compliance with these covenants at June 30, 2001. The Trust IX Variable Funding Loan Agreement's covenants, among other things, restrict the ability of Trust IX to dispose of assets, create liens and engage in mergers or consolidations. The Company was in compliance with these covenants at June 30, 2001. Cash and cash equivalents were approximately $12.1 million at June 30, 2001. Operating cash flows for the six months ended June 30, 2001 together with issuance of long-term debt under the Mid-State Trust IX Variable Funding Loan Agreement and borrowings under the Revolving Credit Facility were primarily used for payments on the mortgage-backed/asset-backed notes, capital expenditures, dividends and to purchase 1.3 million shares of common stock under the stock repurchase program. Cash flow from operating activities for the six months ended June 30, 2001, were $36.6 million, principally reflecting net income for the period and non-cash charges for depreciation and amortization, offset by an increase in working capital. The increase in working capital primarily reflected higher receivables levels at U.S. Pipe from increased sales. Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, levels of domestic construction activity, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in instalment notes receivable or results of operations. 22 Capital expenditures totaled $30.4 million in the six months ended June 30, 2001. These capital expenditures reflect the Company's ongoing commitment to maintain safe, efficient plants and continually increase productivity. Commitments for capital expenditures at June 30, 2001 were not significant; however, it is estimated that gross capital expenditures for the year ending December 31, 2001 will approximate $70-80 million. Actual expenditures in 2001 may be more or less than this amount, depending upon the level of earnings and cash flow, or expansion opportunities in certain markets. In the six months ended June 30, 2001, the Company repurchased $12.2 million of its Common Stock. On April 2, 2001 the Board of Directors increased the authorization to repurchase the Company's common stock to $25.0 million. As of June 30, 2001, $17.2 million remained available for share repurchases under this authorization. The Board of Directors approved a $0.04 per share dividend payable March 15, 2001 to shareholders of record on February 15, 2001. The $0.04 per share dividend reflects a one-time, non-recurring adjustment to the Company's regular dividend rate of $0.03 per share because of a one-time dividend reporting period of four months due to the change in fiscal year end. On April 26, 2001, the Board of Directors declared a $0.03 per share dividend payable to shareholders of record on May 16, 2001. On July 30, 2001, the Company declared a $0.03 per share dividend for the three months ended June 30, 2001 payable to shareholders of record on August 15, 2001. The Company believes that the Mid-State Trust IX Variable Funding Loan Agreement will provide Mid-State Homes with the funds needed to purchase the instalment notes and mortgages generated by Jim Walter Homes and its affiliates. It is anticipated that one or more permanent financings similar to the previous Mid-State Homes asset-backed financings will be required over the next several years to repay borrowings under the Mid-State Trust IX Variable Funding Loan Agreement. In order to facilitate these permanent financings, the Company completed a $750.0 million shelf offering effective on August 1, 2001. The Company believes that under present operating conditions, sufficient cash flow will be generated to make all required interest and principal payments on its indebtedness, to make all its planned capital expenditures, to pay dividends, and meet substantially all operating needs. It is further expected that amounts under the Revolving Credit Facility will be sufficient to meet peak operating needs of the Company. MARKET RISK The Company is exposed to certain market risks inherent in the Company's financial instruments. These instruments arise from transactions entered into in the normal course of business. The Company is subject to interest rate risk on its existing Credit Facilities, the Trust IX Variable Funding Loan Agreement, and any future financing requirements. The Company's primary market risk exposure relates to (i) the interest rate risk on long-term and short-term borrowings and (ii) the impact of interest rate movements on its ability to meet interest rate expense requirements and comply with financial covenants. The Company has historically managed interest rate risk through the periodic use of interest rate hedging instruments. There were no such instruments outstanding at June 30, 2001. While the Company can not predict its ability to refinance existing debt or the impact interest rate movements will have on its existing debt, management continues to evaluate its financial position on an ongoing basis. The Company is at risk on its portfolio of instalment notes receivable. The Company's instalment notes receivable are fixed rate and have terms ranging from 12 to 30 years. The Company manages its risk by periodically securitizing its instalment notes into asset-backed trust agreements funded by fixed rate debt. Therefore, the Company's asset/liability management requires a high degree of analysis and estimation. 23 In the ordinary course of business, the Company is also exposed to commodity price risks. These exposures primarily relate to the acquisition of raw materials and the purchase and the sale of natural gas. The Company may occasionally utilize derivative financial instruments to manage certain of these exposures where it considers it practical to do so. In the first quarter of 2001, the Company entered into a commodity swap to hedge anticipated sales of natural gas. At June 30, 2001, the Company had outstanding commodity swaps with a notional amount of approximately 2.5 million cubic feet. These commodity swaps, which cover the period from July through December of 2001, provide for the Company to receive a weighted average fixed price of approximately $5.30 per MMBTU and to pay a variable price that is substantially the same as the price to be received by the Company from its sales contract with Southern Natural Gas. For further information about the Company's use of derivative instruments, see Note 9 of "Notes to Consolidated Financial Statements." The Company is also subject to a limited amount of foreign currency risk, but does not currently engage in any significant foreign currency hedging transactions to manage exposure for transactions denominated in currencies other than the U.S. dollar. NEW ACCOUNTING PRONOUNCEMENTS On June 30, 2001, the Financial Accounting Standards Board finalized FAS 141, Business Combinations, and FAS 142, Goodwill and Other Tangible Assets. FAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. With the adoption of FAS 142 effective January 1, 2002, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Under the new rules, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. These intangible assets will be required to be amortized over their useful lives. As of June 30, 2001, Walter had $434.5 million of goodwill, net of accumulated amortization of $539.1 million. The Company estimates the adoption of FAS 142 effective January 1, 2002 will result in the elimination of approximately $29.0 million of annual goodwill amortization. However, the Company has not fully analyzed or determined the effect of applying this new standard. PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT This Form 10-Q/A contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that is based on the beliefs of the management of the Company, as well as assumptions made by and information currently available to the management of the Company. When used in this Form 10-Q/A, the words "estimate," "project," "believe," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 24 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. See Note 11 of Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K/A for the transition period ended December 31, 2000. In July 2001, in a civil action pending in Jefferson County, Mississippi involving the Company's homebuilding subsidiary (Jim Walter Homes, Inc.), a jury awarded four plaintiffs compensatory damages aggregating $13.3 million. The case involves three houses constructed by Jim Walter Homes and alleges that the plaintiffs were promised quality, well-built houses and that Jim Walter Homes failed to deliver on its promises. The houses had an average price of approximately $45,000. Jim Walter Homes believes the verdict is not supported by the evidence and has requested the trial judge to set aside or reduce the verdict or order a new trial. While the final outcome of this matter cannot be predicted with certainty, the Company believes that it will not have a material adverse effect on the Company's consolidated financial condition. The Company and its subsidiaries are parties to a number of other lawsuits arising in the ordinary course of their businesses. Most of these cases are in a preliminary stage and the Company is unable to predict a range of possible loss, if any. The Company provides for costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, the Company believes that the final outcome of such other litigation will not have a material adverse effect on the Company's consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) None (b) None 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WALTER INDUSTRIES, INC. /s/ W.F. OHRT /s/ C. E. CAUTHEN - --------------------------------------- --------------------------------------- W.F. Ohrt C.E. Cauthen EXECUTIVE VICE PRESIDENT AND SENIOR VICE PRESIDENT, CONTROLLER AND PRINCIPAL FINANCIAL OFFICER PRINCIPAL ACCOUNTING OFFICER Date: January 28, 2002
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